Barrack Obama

As America “pivots” towards Asia where the future economic centre of gravity of the world will be, how big or small a role will the Philippines play in this the Pacific Century?

Source of image: taiwandocuments.org

Jim O’Neillthe manfrom Goldman Sachs responsible for the acronym BRICs (which stands for Brazil, Russia, India and China) in a forthcoming book feels all the more convinced as ever of the accuracy of his predictions ten years ago when he first coined it to describe the growth potential of emerging markets. His sense of vindication for what he now characterises as his “conservative” estimates comes from the fact that in his words,

The world economy has doubled in size since 2001, and a third of that growth has come from the BRICs. Their combined GDP increase was more than twice that of the United States and it was equivalent to the creation of another new Japan plus one Germany, or five United Kingdoms, in the space of a single decade.

At this rate, China will be on track to surpass the United States as the world’s biggest economy by 2027, according to O’Neill, beating the earlier estimate of 2035. Predicting when this will happen has become an interesting past-time of analysts of late, which is why The Economist whose own projections for a 2019 year of reckoning made available the following interactive chart where you can play around with the assumptions and do-it-yourself by entering them in the assigned fields (see below).

The Asia-Pacific has become a key driver of global politics. Stretching from the Indian subcontinent to the western shores of the Americas, the region spans two oceans — the Pacific and the Indian — that are increasingly linked by shipping and strategy. It boasts almost half the world’s population. It includes many of the key engines of the global economy, as well as the largest emitters of greenhouse gases. It is home to several of our key allies and important emerging powers like China, India, and Indonesia.

Together, I believe we can address shared challenges, such as (nuclear) proliferation and maritime security, including cooperation in the South China Sea. Meanwhile, the United States will continue our effort to build a cooperative relationship with China. …We will do this, even as we continue to speak candidly to Beijing about the importance of upholding international norms and respecting the universal human rights of the Chinese people. A secure and peaceful Asia is the foundation for the second area in which America is leading again – and that’s advancing our shared prosperity.

A constant theme in that speech which effectively marked the “pivot point” to the East was America’s adherence to the rule of law to govern international relations in security and economic terms, as well as its championing of open democracies and free markets in the region. In both cases, Obama was at his professorial best when he promoted the concept of rules based trading in commerce and politics.

His speech writers could be said to channel F.A. Hayek the founder of contemporary libertarianism who said that, “Only the existence of common rules makes the peaceful existence of individuals in society possible.”

This is consistent with America’s constitutional belief in universal principles. Prof Obama was also acting like Dr King, in that he was delivering a sermon. He may have seemed in Australia to be “preaching to the choir” but his real intended audience was not in Canberra, but Beijing. In Bali, he got to exchange a few constructive words with his Chinese counterpart. Much to the Philippine delegation’s dismay, the US defence posture in the region is not meant to intimidate the rising power of China into submission over the South China Sea issue.

Back home, President Aquino had another axe of sorts to grind with the placing of his predecessor Gloria Arroyo under hospital detention following her indictment for election fraud. This followed a week of controversy involving her attempted departure from the country to seek medical treatment following a Supreme Court decision to temporarily lift the Department of Justice’s hold departure order on her, a decision that was not accepted by the said department.

All of this puts into context, the question of where will the Philippines be in 2020? Will the Philippines be a prosperous democratic country governed by the rule of law? Or will it still be struggling to achieve this ideal that the US president spoke of so eloquently?

Today, the hot topic in Manila among political commentators is whether the action taken by the Aquino government to prevent Mrs Arroyo from leaving was in accordance with the rule of law. On the side of those who say yes is Randy David who believes what we have now is a “rule of justices” not a bona fide rule of law thanks to the lady at the centre of the controversy. On the side of naysayers is Solita Monsod who believes the speed with which the investigation was conducted points once again to the politicisation of the process. Both make reasoned arguments in support of their views.

The president convinced of the justness of his actions and mindful of his constituents exhorted his countrymen to “not waver.” He said that

We are all working for a new Philippines, one where there is equality, where whoever does wrong, whatever his status in life may be, is punished, a country where justice rules.

Whatever the position either camp holds in this debate, all will agree that prosecuting the Arroyos has been quite a messy undertaking, much like the way President Joseph Estrada was deposed from office. The legality of it will be questioned and the merits of it will be argued for years to come in the court of public opinion.

Incidentally, 2011 is also the tenth year since Estrada’s ouster. Back in 2001, Mr Estrada will argue, the country’s elites conspired to bring a sitting and democratically elected president down by extra-constitutional means. Today, it has been argued that one faction of the elite has manipulated the legal system to jail the head of another.

In all this time, has the country progressed towards becoming a stable more prosperous country? To the analysts, the country’s growth rate over the last ten years has proven their rosy forecasts right. They will say that we are on track both demographically and economically to be a force to reckon with by 2020 and beyond.

To the “insiders” the same old problems of social inequity still prevails. One set of rules still seems to apply to one class of people, and another applies to the rest. To the administration and its followers, the Arroyos have become totemic of this system. To them successfully prosecuting and sending her swiftly to jail would prove once and for all that only one system of justice prevails in the country.

To the realists, the application of justice over the course of the next ten years will largely depend on who sits in power. By 2020, a certain boxer-legislator who happened to be one of GMA’s strongest endorsers believes he will be a strong contender for the Palace in 2022. By then he would have tucked a few billion pesos under his belt and followed a path set before by the populist Erap Estrada.

Should the reforms espoused by the current seat warmers of Malacañang not take route in the next five years the political pendulum could swing the other way and a revival of patronage-based populism with a new face could rise to replace the torch-bearers of our current elite democracy.

Similarly, China could match the US pound-for-pound in their rivalry for regional dominance. The Beijing Consensus might by then trump the Washington version. A different model for prosperity might be in play making the need for establishing common rules seem rather (how shall we put it?…) academic.

In uncharacteristicallyblunt language, US President Obama as host of the APEC summit in Hawaii called on China to act like a “grown up” saying “enough is enough” and that it was time for the People’s Republic to “operate by the same rules that everybody operates” threatening dire consequences unless the yuan appreciates by 20-25%.

The US has been pressing China to allow its currency the yuan to appreciate more quickly to make American products more affordable to Chinese residents and similarly make Chinese exports less attractive to US based consumers. President Hu’s pragmatic response–allow imports to rise without necessarily liberalizing the currency exchange regime–is typical of the Middle Kingdom.

Unlike America’s faith in free markets, China would rather deliberately get prices wrong if it would allow it to maintain a healthy trade surplus with the US. This after all was the same path to development that the US took when it was still in its “catch-up” phase with Western Europe.

Yet America, with its penchant for universal principles (“we hold these truths to be self-evident”) is now in the game of preaching free trade, open markets and property rights in the Far East just as it preached democracy in the Middle East. China is instinctually groping for a particularistic response. Although sounding undiplomatic, I like Pres Obama’s rhetoric because it gave away an important concession in the development debate.

“Gaming the system” or the notion of applying the tools of industrial policy to generate a competitive advantage for nascent industries in global trade as a legitimate means to catch-up with more advanced economies while a country is still relatively underdeveloped has been acknowledged. In the local vernacular, “saling pusa” which refers to little children allowed to participate in a game without having the same rules applied to them would be the way America views the Chinese.

For those who believe that lowering trade barriers helps promote growth, the following graph taken from Dani Rodrik’s paper to the UN should help dispel that notion. It shows a positive albeit insignificant correlation between tariff levels and economic growth. At best, no correlation can be inferred between lowering barriers to trade and growth, which is why the Philippines despite having very low tariffs relative to its ASEAN neighbors, has not been growing strongly. As I mentioned in my last piece, higher barriers to entry actually have been found to induce domestic innovation that in turn leads to new exports.

This should help comfort those distressed by that CNBC press release that the Philippines is the worst place for doing business in Asia. It should also be noted that in their top ten worst places, India and Indonesia were included. If these are the sorts of countries that we are in league with, then we really should not be too bothered.

Despite that dubious title, one should actually pay attention to the fact that the CNBC pronouncement was based on the World Bank’s Doing Business Report. Many of the measures in this report simply do not apply to businesses within the special economic zones which is more relevant to foreign investors. Furthermore, petty corruption actually allows many of the so-called barriers for entry to be removed.

The main roadblock to foreign direct investments is actually the desire of business to operate with the same protection of contracts and property rights wherever they are along with low costs to entry without the necessary tax burden and industrial labor costs that are needed to foster this. On the other hand, ordinary citizens that politicians seeking re-election (as in the case of Obama) try to please don’t want unfair competition for their labor from less developed countries which try to create a system of arbitrage to attract foreign investors.

It isn’t that investors want a level playing field. Consumers by and large don’t really mind whether a producer competes fairly for a slice of their hip pocket. That means for a country seeking to attract foreign investors increasingly ceding a lot of its national policy-making abilities to Western bodies and institutions to gain access to its markets. Hence the rhetoric of Obama who is trying to create a narrative that would pit the economies in the region against China.

This week, as he travels en route to the East Asia summit in Bali, Indonesia, the US president is scheduled to make a stopover in Canberra to address the Australian parliament and sign a deal that would increase US troop presence in a base located near Darwin. The two nations have already beefed up the ANZUS mutual defense treaty by allowing allies to invoke it in the case of cyber attacks just as it was used in justifying Australian participation in the US war against terror.

This means that the Philippines will engage in free trade with China via CAFTA, while having a military alliance with the US. This is probably the best possible outcome–a good way to counter-balance each competing force on either side of the Pacific. Australian PM Julia Gillard put it best when she said this week,

It is well and truly possible for us in this growing region of the world to have an ally in the US and to have deep friendships in our region including with China.

Sure enough, on the day he arrived back from the US, the Dow Jones plunged nearly 400 basis points undoing the Federal Reserve’s measured response to prop up confidence. This was in reaction to what has been going on in Europe where Italy, the third largest economy received a credit downgrade from S&P and where a Greek default on sovereign debt looms. Meanwhile the Washington elite remained at odds over how to keep the government running with a measure to keep the lights on until November 18 passed literally at the eleventh hour.

The president instead spoke of the keen interest and enthusiasm of US investors who were “lining-up” to come to the Philippines. Strange that the president did not even mention the figure of $15 million over the next four years the only firm commitment to come from Pepsi to be invested in developing a coconut juice processing facility.

That after all would be good news for the struggling farmers the intended beneficiaries of the Marcos era’s coco levy fund which was meant to provide them support in exporting their crop, but instead went to a bank which then lent to the fund’s manager, P-Noy’s once estranged uncle, who because of that now owns a controlling stake in San Miguel the food and beverage giant thanks to the high court’s ruling earlier this year.

So why the omission, which is so uncharacteristic of arrival statements; could it be because the spoils of this trip are so meager when compared to the nearly 25 million pesos spent on it? It would depict it as representing less value for money by producing a mere 6o cents for every peso spent.

This should not detract from the overall mission of the trip which according to the president was fulfilled by him reporting to the World Bank the advances of his administration this past year and greeting the Filipino community there. There was also the side trip to credit agencies to try and convince them to boost the ratings of the country. After all, the budget deficit no longer seems to be a problem with a surplus reported in August bringing the cumulative deficit for the year to be 85% below its ceiling, right?

This is what the president trumpeted as a success in his drive to stamp out corruption. In the spirit of transparency and openess, which were the themes of the Open Government Partnership that P-Noy inaugurated at the Waldorf Astoria (which incidentally means more foreign trips in the near future to Brazil, Chile, UK, Tanzania and Latvia), the Palace should have at least acknowledged that perhaps the Americans were in no position given the state of their economy to be exporting their capital and jobs to countries like the Philippines.

Never gonna happen

That transparent recognition of the state of affairs of course was never going to happen, for the simple fact that doing so would expose the president to accusations of junketing which given the nature of his presidency is something his entourage wants to avoid. For if the question were really to be asked, what would be the real urgency of making this trip to the US a second time in a row within the space of a year, what would be the answer?

His remarks at the World Bank was like that of a star pupil performing a didactic exercise of parroting his tutor. His visit to Fordham University was a sentimental journey mirroring his mother’s footsteps (similar to his visiting an ancestral hometown in China). His co-inaugural of the OGP lent legitimacy to an initiative sponsored by the World Bank which has struggled to make itself relevant.

Finally, his trip to the IMF was unnecessary given that the Philippines exited their program right before he entered office. The only point of this trip it seems was to highlight the advances of his young presidency in proving that “good governance is good economics”.

Unfortunately, the jury is still out on that. For one, the US haul was a pittance compared to the Chinese catch. And China has not really been deterred from investing because of perceived corruption or lack of openness. In fact, China’s development spending in emerging countries devoid of any concerns about corruption in the recipient nation is the main reason why western aid agencies have been struggling to maintain their relevance.

That and the fact that their anti-poverty programs have proven to be inconsequential. So much so that they have jumped on the bandwagon in supporting ideas developed independently by their clients. Programs such as Bolsa Familia which is now called “conditional cash transfers”. Yet as shown in an earlier post, the Philippines could have funded its own variant of this scheme without resorting to multilateral financing.

Second, the “interest” from US companies to invest was sparked not because of a greater sense of openness but from the relative advantages the Philippines has in a couple of areas. One is in the form of coconut plantation; and, two is in the form of a call center industry that has grown from strength to strength even during the period in which corruption supposedly reigned.

Now before you start arguing that the austerity exhibited by P-Noy in his travels is in stark contrast to the “impunity” demonstrated by his predecessor, let me say first of all that this habit of constantly bringing up ex-president Gloria Arroyo as the benchmark for this president’s conduct in office is not really very useful (although I am sure her supporters would be happy to have that conversation). I would prefer to think he should set the bar much higher.

The proper benchmark

Before questions of efficiency and effectiveness are raised, it is important to cross the threshold of appropriateness. How appropriate was it to make the trip at all? If as the president says it was important to send a message about the reforms undertaken by his country, then perhaps it would be pertinent to look at Indonesia’s example. The president of Indonesia the only other Asian country in the steering group of the OGP has trodden the path that P-Noy has just embarked on.

After the anti-corruption campaign started under Susilo Bambang Yudhoyono’s first administration, Indonesia has clearly effected a change in its image abroad. It is sometimes accorded “BRIC” status with gross capital formation as a ratio of GDP about double and foreign direct investments several multiples of that in the Philippines in recent years. This was another successfully home grown program not driven by donors, the main reason it went from being seen as a basket case after the fall of Suharto to joining the Group of 20 nations.

Yet after accomplishing all this, its president felt no compelling reason to preach the virtues of his nearly decade long administration to other world leaders choosing instead to send a “trusted aid” to the event. Our president on the other hand felt so convinced that his administration after just over a year in office was performing sufficiently well that he saw the need to share his country’s “success story” with people abroad.

Unlike the case of Indonesia where the anti-corruption campaign supported growth, the Philippine government’s attempts to rein in corruption seem to have detracted from that growth as the latest four quarters of GDP reporting have shown (ironically it is in the area of growth where the Philippines over the last decade has not performed too badly against its southern neighbor–but never mind that, lest this statement of fact be interpreted as me giving “props” to the previous dispensation).

While it is understandable for the president acting as Salesperson-in-Chief to present a positive image abroad of our country and his administration, it is equally important for that image to be translated into tangible results over a sustained period of time. Only then will the image correspond to reality. Until then, we can only keep asking, “Mr, President, where’s the beef?*”

*Fresh from his US trip, the president rushed off to Japan for four days. The contrast between the East Asian and North Atlantic nations could not be more stark with one billion dollars expected to be signed off with a taxpayer’s bill amounting to 20 million pesos.

Pres Aquino’s trip to the US comes at a time of deep political and social turmoil for the land of the free.

Protest riots in Europe: a sign of things to come in America?

The opening salvo came from Mayor Mike Bloomberg of New York who said on Friday that a prolonged period of high unemployment is producing conditions similar to that found just prior to riots in London (and across Europe as a result of austerity measures). In response to Bloomberg’s comments, Rush Limbaugh an ultra-conservative radio commentator attacked the mayor for his bi-partisan leanings while at the same time agreed with him that chaos was coming and that it would be welcomed by Pres Obama.

Such conspiracy theories were backed by Texas Cong Ron Paul a contender in the ongoing Republican nomination process for president who said that it was in the interest of those espousing big government for a breakdown of law and order to ensue given that it would lead to a public outcry for government intervention to re-establish public order. On Twitterverse, there was some chatter about the introduction of martial law in response to riots and a postponement of elections in 2012.

It just so happens that these right-wing conspiracy theories have occurred on the 40th (update: actually, it’s the 39th) anniversary of Pres Marcos’s declaration of martial law in the Philippines. It now appears that the world has been stood on its head four decades later.

In the past, when Philippine heads of state visited America, they often went cap in hand in search of aid, investment and trade. As P-Noy gets set to pay his respects to the leader of the free world, there will be very little appetite on the latter’s part for taking out the checkbook.

At a time when the US economy struggles with its first credit downgrade in nearly a century, huge fiscal and trade deficits, persistent high unemployment, sluggish growth and rising poverty rates, it wouldn’t be the right time to ask for more help. This visit is all about maintaining and strengthening ties (after Wikileaks revealed some very unflattering remarks made by the former US ambassador to the Philippines regarding our president) rather than promoting trade and investment.

Still, I would look out for the gratuitous announcements of investment dollar commitments that inevitably will come at the end of this trip. Compared with the Chinese catch, it would be interesting to see the return on investment per overseas dollar spent.

One: the anemic 3.4% GDP growth experienced by the Philippines in the second quarter of the year. That places growth in the first half at 4%. Economic managers have had to revise downwards their full-year projection to 4% from the targeted 7-8% (it would require growth of 10% in the second half of the year for the target to be reached, and not even the budget department’s assumption of 5% seems likely at this point).

Two: the abysmal jobs market in the US which saw no new net jobs created in August as many private firms became spooked by events in Europe and the US credit downgrade. The fact that high unemployment is expected to persist until 2015-16, perhaps even to 2016-17 (with many states coping with the end of stimulus by laying-off workers) has led many to conclude that the US is teetering on the brink of a double dip recession.

Bracing for the harsh winds from a US downturn, Sen Frank Drilon has called on the government to step up its infrastructure spending. Amando Doronila uses the findings of Credit Suisse which downgraded its growth prospects in the region which is expected to suffer “more than most” and cast doubts on the Philippines because it doubted whether

(T)he planned PPP (public-private partnership) infrastructure projects that many were bullish about were likely to get off the ground in a hurry.

In fact, the first couple of projects are scheduled to be bidded out at the end of the year, 18 months after the SONA in which it was announced. That means actual investments will not flow until well into the next year.

Economist Solita Monsod in her weekend column chastised our economic managers for not heeding the official early warning signs by accelerating public construction expenditure. She likened it to economic sabotage when she concluded

Public construction contracted by 23 percent in the third quarter of 2010 and 14 percent in the fourth quarter. Okay, that’s the price for trying to tighten procedures. But decreasing by 38 percent in the first quarter of 2011? And 51 percent in the second quarter?
Prevent plunder? Maybe. But there is economic sabotage in the process. What a choice Filipinos are faced with: between ill-intentioned plunderers and well-intentioned saboteurs.

Amando Doronila had more harsh words in today’s op-ed piece

The straight path to governance sainthood under the Aquino administration’s mantra, “without corruption there’s no poor,” is littered with the derelicts of pious slogans as well as the detritus of incompetent economic management. These derelicts cannot make up for the big deficit in economic performance.

Much like his American counterpart whose followers have become disenchanted with the meager results of his lofty campaign rhetoric, PNoy could soon find the public’s receptiveness to his slogans waning with each passing day.

After experimenting for a year with his idealistic Daang Matuwid will hard-nosed pragmatism be resurrected? A dual track is needed in which the administration pursues its good governance agenda in a way that does not hamper economic growth and development.

This is perhaps what the purists in his camp failed to consider, that the path to development is not a single lane, and that the two agendas can run side-by-side.

Officials are writing off the first semester and counting on better economic conditions in the second half to lift growth and meet their targets for the year.

Even before the release of second quarter GDP results at the end of August, the government is downplaying expectations for a sharp rebound after the deceleration of growth to 4.9% in the first quarter from 8.4% the previous year with one trade official saying he expected growth to be below 5%.

Exports are expected to take a hammering, shrinking by 5%. This is a far cry from the industry growth target of 8-10%. And while the Bureau of Investments reported a tripling of approved investments in Q2, it remains to be seen if such commitments truly materialize. A very credible analysis of such investments points to a very low and sometimes negative correlation between commitments and actual spending.

The public-private partnerships that were meant to be awarded in the first half have been put off for later in the year and next year. Although the agricultural sector benefited from the early rains, such weather would not have been auspicious for public works projects.

With black swan events such as the Japanese tsunami and uprisings in MENA hampering growth in the first half, economic planning officials are now banking on reconstruction efforts in Japan and more settled oil markets to help prime our economy in the second half. Our prospects seem to be driven entirely by external events.

What would make matters worse is if consumer sentiment sours. That would dampen the enthusiasm of businesses to invest which is what propped up growth in the first quarter. Gone are the optimistic projections of hitting 7-8% this year. The government would be happy just to reach 5% in this climate, the minimum required under its development plan.

On the other hand, the “fiscal consolidation” the government undertook in its first year in office has reaped praise from external agencies all around. The S&P which many fault for downgrading the US economy while giving a triple a rating to toxic subprime mortgages gave the Philippines a big thumbs up of approval.

It has signaled however that further upgrades would depend on whether the government can raise revenues given that future growth would depend on government unblocking crucial bottlenecks to development. The challenge is how to accomplish that without stunting growth, particularly with a global downturn on the horizon.

What to do now?

It is quite ironic that with global markets reeling on fears of advanced sovereign nations defaulting on their loans, that the cost of borrowing should go down for the US and the Philippines as funds shy away from risky portfolio investments and into fixed income securities.

As Barrack Obama prepares to roll out his economic plan in the US to address the depressed jobs market there, what policy options are open to P-Noy and his government to consider in its second year in the Philippines? Let’s examine some of them here.

1. Stimulus or austerity? Unlike America which scaled a “wall of debt” to stimulate its economy (not very successfully) during the last global financial crisis (see chart), the Philippines experienced a relatively soft landing with government debt as a share of GDP returning to pre-crisis levels.

The debt of the US is expected to rise even further according to IMF projections from 92% of GDP in 2010 to 112% by 2016. The Philippines by contrast is expected to see its government debt decline from 47% in 2010 down to 40% by 2016, albeit still higher than the ASEAN average.

This actually affords the country some “fiscal space” to deal with any downturn that might occur in the coming years. The US has basically run out of ammo to engage in what economists call countercyclical spending aimed at boosting demand in a period of weak growth.

The government could ramp up spending on social welfare programs like the conditional cash transfers, universal health, land reform and distribution or provide more economic infrastructure and services such as farm to market roads, irrigation, clean water and sewerage systems. On the other hand, the government might opt to wait until it restores the budget to surplus, before engaging in new spending measures.

With the fiscal incentives and sin tax rationalization bills endorsed and making their way through Congress, the administration hopes to boost its fiscal capacity to engage in either deficit reduction, fiscal expansion or both.

2. Protect or open up? A second set of prescriptions has to do with whether the government should be opening up more sectors to trade and investment. The country’s trade balance after cratering in the early part of the last decade started to grow in sync with its ASEAN neighbors towards the latter part of it (see chart).

Unlike America which has had chronic trade deficits because of its trade imbalance with China, the Philippines has experienced a positive trade surplus with China for all but the last years of the last decade. Compared to Indonesia which is still primarily concentrated in commodities and low end manufacturing, the Philippines has a more diverse economy demonstrating the capacity to produce more technologically sophisticated products.

Some have called for charter change in order to ammend the economic provisions of the constitution prohibiting foreign ownership of companies in certain sectors (utilities, property and education), and from engaging in their professions (unless specified by law). These protectionist clauses they say have been a major hindrance to attracting direct foreign investments.

That argument might be hard to prove, but removing absolute restrictions and moving to a regulated framework might be a good move given the direction certain bilateral and multilateral trade agreements in the region are headed.

Some might fear the opening up or globalization of the economy reduces our flexibility in creating competitive industries particularly in vulnerable sectors, however, such fears are not shared by other countries which traditionally have used protectionist policies to build their export sector.

3. Intervene or stand back? Another set of policy options has to do with influencing incentives for trade and investment in the country. Should the government provide help to struggling industries with fiscal incentives or should it take a more neutral stand and simply welcome any form of investment?

There is an ongoing debate in policy circles about whether manufacturing drives productivity and therefore needs to have special government policy directed at boosting it.

The Philippines and India seem to be more service based economies than China and the rest of East Asia (see chart). As wage rises increase the cost of production in the coastal provinces of the People’s Republic, opportunities exist for relocating lost manufacturing plants back in the country.

This could be the market’s way of correcting an imbalance that has been maintained aritificially with the Yuan’s undervaluation, so in that case can government help it along and how?

As they embargo possibly disappointing statistical information prior to their release, economic managers are pinning their hopes on a second half recovery. If their first year in office was all about consolidating the nation’s fiscal position, the second will be all about providing the necessary conditions for growth.

As markets in the North Atlantic countries take time to sort out their fiscal mess, countries in emerging Asia will have to rely on consumer spending to prop up their domestic economies.

In its short stint in office, the PNoy administration will be tested on whether it can truly maintain fiscal consolidation (as most reform efforts in the past have sputtered out) while supporting social safety nets and growth. In this regard, not all things are externally driven. The policy choices it makes will determine the course the economy eventually takes.

The book examined the EDA, an agency that still exists today and is located within the US Department of Commerce to show how policies conceived with the best of intentions at the top, get corrupted and bungled on the way to implementation. It is a cautionary tale on the limits of idealism and noble intentions, a vivid exposition of that oft repeated phrase that the road to hell is paved with good intentions.

There can be no more apt way to depict the manner the PNoy presidency has conducted itself during its first year in office. The Filipino equivalent, which goes, maraming namamatay sa maling akala (or many perish because of false assumptions), also rings true. The president to be sure entered the Palace with nothing but the best of intentions propelled by the highest hopes of the people with a vision for

a re-awakened sense of right and wrong, through the living examples of our highest leaders…a collective belief that doing the right thing does not only make sense morally, but translates into economic value as well (from the Liberal Party’s Social Contract).

The movement that had pushed him to enter the derby wanted a person whose reputation would contrast with the existing field. The election was to be framed as a contest between Good and Evil, Light and Darkness, anchored on the moral superiority of their cause.

When he announced his candidacy, Benigno “Noynoy” Aquino used the words of an admirer to capture the moment, in that “we can finally dare to have hope once more.” He was declared the Philippine equivalent of Barrack Obama, whose book The Audacity of Hope inspired the 2008 presidential campaign slogan, Change We Can Believe In.

(t)hrough good governance in the coming years, we will lessen our problems. The destiny of the Filipino will return to its rightful place, and as each year passes, the Filipino’s problems will continue to lessen with the assurance of progress in their lives.

During his first formal address to Congress, the president stated that the nation faced a fork in the road. On the one hand was the quick and easy path that led to destruction, while on the other was the long and arduous one that led to deliverance. He pledged to take the nation straight down the Righteous Path or Daang Matuwid.

In his first budget statement, he fulfilled a campaign pledge to institute a zero-based budgeting approach to weed out anomalous projects and programs. Only those considered necessary and above board would receive funding. On balance it was a frugal budget, less than 2% above the previous year’s before accounting for inflation, which meant that he had effectively shrank the government. This was meant to give himself a fighting chance to fulfill his “no new taxes” pledge to businessmen at the big end of town.

All of this was in keeping with the vision for a country with a new set of morals that would translate into economic value.

Well it seems that in their bid to control government waste and corruption, the administration has unintentionally created a situation where much of its programmed spending was held back (up to 20% in the first quarter alone). The massive withholding of spending amounting to close to 70 billion pesos in the first four months of the year (which when we factor in negative multiplier effects is really around 100-150 billion pesos or 1-1.5% of GDP) appears to have had an adverse impact as contractors stopped hiring and in fact layed off more workers.

This occurs at a time of rising cost of living presssures and as a fresh batch of new graduates are about to join the labor market. Despite spending more on conditional cash grants to alleviate the plight of the poor, the actions of the palace seems to have made life much worse for many of them. The government in effect seems to be giving with one hand while taking away with the other.

It seems that in seeking to treat the symptoms of moral degradation and heal the body politic, PNoy forgot the first maxim of the Hyppocratic Oath, which is to do no harm. Indeed as it nears the end of its first year in office, the government of the Benign One appears to have very little to show for its posturing on institution building and bringing about greater economic benefits of a cleaner, moral government: perhaps a case of great expectations dashed once more.

The ProPinoy Project

The ProPinoy Project is a Global Community Center for all things Pinoy, to connect Filipinos at home and abroad by creating a space for ideas, trends and analyses about the Philippines and the global Pinoy community to inspire informed discussion and transformative action.

The ProPinoy Project is a Global Community Center for all things Pinoy, to connect Filipinos at home and abroad by creating a space for ideas, trends and analyses about the Philippines and the global Pinoy community to inspire informed discussion and transformative action.